The secret that accountants desperately dont want lawyers to know
As I have done more and more work with small legal practices, I have spent time comparing them to small accounting practices that operate in the same regions. In doing this I have discovered a secret that I think many lawyers would like to know. The secret is this.
The earnings of a partner in an average small accounting practice is around twice that of the earnings of an average small legal practice principal.
In arriving at this conclusion, I have drawn on the resources of a number of people who should know, as well as my own observations.
The Law Society of NSW did a survey last year, which is based on the 2009 results of solicitors in the survey (you can download it from the Law Society web site by typing in “survey” in the search box and look for 2009 Profile of the Solicitors of NSW). When you explore the figures, I’m sure you will find as I did, that the average income of a small legal practice principal is at best $140,000 p.a.
In a recent discussion I had with Mark James the former CEO of Principa (a company who specialises in helping accountants run better businesses) he stated and I quote:
“In my experience an average accounting practice would expect to make around $300,000 p.a. profit per partner pre partner salaries and a better performer would earn around $500,000 p.a. profit per partner pre partner salaries”.
This certainly matches with my own personal experience as a partner in two accounting practices as well as numerous discussions with practitioners over many years.
So, it begs the question, as probably near all solicitors have an accountant.
For more information on the secret that accountants desperately dont want lawyers to know, click on the link below:
Are accountants letting their lawyer clients know about this and then start a discussion about what they should do to reduce the gap?
I suspect not.
In fact on a recent road trip where I spoke to quite a number of small legal practice principals, I don’t now suspect this, I know it absolutely.
I find this knowledge fascinating, particularly because I really believe that a lot of the work that principals of small legal practices do is much more complex and demanding than much of the work done by most accountants ( don’t forget I have been one for over 25 years), yet they are on average earning half as much.
Now like all information, you can just accept it, or you can look at it and ask yourself the question:
“Now that I know this, how can I use it to my advantage?”
Of course the obvious comment is that accountants have to see their clients every year, whether the client wants to or not, to do a tax return. So even a below average accountant (of which there are plenty) gets most of their clients coming back each year and continues to earn a good income, that is much better than even a really good small practice lawyer.
I think though, there is much more that can be learned from this knowledge and if it is simply dismissed because of this, then you miss an enormous opportunity.
If we explore this theme a bit more, for some years in my previous accounting partnership, I was the partner in charge of financial planning and I also earnt considerably more than the country solicitor principal and my clients weren’t told by the Government that they had to keep coming back each year.
So you see, it isn’t the Government that is causing this disparity. There must be other factors at work here.
Let me give you one and I have quite a list of them.
The average ( and even the below average) country accountant, generally has several fee earning staff who work for him and work on the less complex matters and parts of other bigger matters.
When you look at lawyers, it is indeed no surprise, that the more profitable ones almost always have better than average leverage.
So if you are serious about making more money, one of the first things you can draw from this comparison, is that leverage is just one way, that you can improve your return, without, importantly working any harder yourself.
I will continue this discussion in future blogs, so feel free to check in on the website in the future and make sure that you pass this information on to your lawyer friends, but not of course to your competitors, let’s keep them in blissful ignorance for a bit longer.